HMRC

Capital Gains Tax hit record £14bn in 2021

Some 323,000 taxpayers footed the CGT bill in 2020-21, marking an increase of 53,000 from the previous year

The Treasury has witnessed record amounts of Capital Gains Tax (CGT) in the year ended 5 April 2021, with CGT rising 42% to £14.3bn against the prior year. 

Some 323,000 taxpayers footed the CGT bill in 2020-21, marking an increase of 53,000 from the previous year, and the average bill was £44,316 per CGT taxpayer, up from £37,289 in 2019-20.

According to RSM, the quantum of capital gains reported increased by 19% and the quantum of CGT payers increased by 20%, with the “record-breaking” quantum of CGT receipts following bumper receipts in the previous tax year.

RSM said the bumper CGT receipts in the previous tax year were largely driven by reports that Business Asset Disposal Relief (BADR) would be abolished, which “accelerated many entrepreneurs’ decision to sell their businesses”.

Ross Stupart, corporate tax partner at RSM UK, said: ‘Given the latest statistics, it would appear that the Treasury has continued to utilise fear tactics to drive up tax receipts from CGT collections. 

“In addition, the fall in the BADR lifetime limit from £10m to £1m from 11 March 2020 has meant that the quantum of CGT liabilities has arisen as a higher value of capital gains will have fallen outside the BADR lifetime limit of £1m and in to the 20% rate of CGT. The statistics show that gains that the BADR was claimed on fell by 60%, which will be directly as a consequence of the reduction in the lifetime limit.”

He added: “There is no doubt that concerns regarding changes in CGT rates have driven business transaction volumes and therefore the quantum of CGT being collected for 2020/21 tax year. With significant increases in the number of CGT payers in the 45 to 54 and 55 to 64 age categories, this may suggest that entrepreneurs are realising their business assets earlier than perhaps planned in order to remove the uncertainty around current tax policy from their business succession planning considerations. 

“This begs the question around whether forcing entrepreneurs down this route could lead to sacrificing productivity and growth that could have provided a greater economic contribution in the long term.”

Chris Etherington, private client tax partner at RSM UK, said: “The latest capital gains tax (CGT) statistics highlight how younger investors and entrepreneurs have been coerced into paying tax earlier due to concerns over tax rate changes.  

“In the year to 5 April 2021, there was a 50% increase in taxpayers aged between 25 and 34 years of age paying CGT from the year before, rising from 10,000 to 15,000 taxpayers. The increase in CGT paid by this age group is a staggering 134% higher in the 2020/21 tax year – resulting in an extra £221 million of CGT being paid. There have been sizeable increases in the CGT paid in other younger age groups.”

He added: “The sizeable increases in CGT paid points to panic decisions being made by younger people in response to the lack of clarity on CGT rates and reliefs. Younger investors and entrepreneurs may have felt their hand forced by the risk of larger tax bills and selling an asset or business interest at an inappropriate time. 

“It is sometimes said that the ‘tax tail should not wag the investment dog’ but the Treasury’s policy on CGT, or lack of it, has dragged taxpayers on the leash to selling their assets.”

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